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Response to the Institute for Fiscal Studies’ new report on university finances in the pandemic

  • 6 July 2020

Responding to the new report by the Institute for Fiscal Studies (IfS) on Will universities need a bailout to survive the COVID-19 crisis?, Nick Hillman, the Director of the Higher Education Policy Institute (HEPI), said:

The IfS report is as lucid and clear as we have come to expect from them. They are right that universities with more international students and bigger pension liabilities are more directly affected by Covid than others and also that institutions which were financially weak before the pandemic are the ones most at risk of actual insolvency. They are also right that the arguments for extra support for universities in the crisis are strong. But that doesn’t mean they’re right overall.

There are three important points to note.

First, the range of projected short-term financial losses for universities, which the IfS calculates at between £3 billion and £19 billion, is so enormous that it’s pretty meaningless in terms of planning ahead. It’s such a huge fan of uncertainty that it doesn’t help either universities or policymakers know where they stand.

Secondly, there are too many reports around at the moment that take old opinion polls of how students might behave as the gospel truth. We know from when tuition fees in England went to £9k that polls which ask students how they might behave are a woeful guide to the future, and the IfS’s figures on student numbers should therefore be taken with a lorry load of salt.

For example, the IfS are assuming there will be 10% fewer UK students, yet the latest UCAS figures show the opposite trend. Who would choose to have a gap year at the moment, when travel and job opportunities are so limited? The IfS are also predicting a 50% drop in EU students as a result of the pandemic, even though 2020 is the last year when they will be treated like home students. Unless there is a major second wave of Covid-19, the IfS’s “central” estimate for the short-term financial losses would be better labelled “pessimistic” and their “pessimistic” estimate would be better labelled “extreme”.

Thirdly, the oddest feature of the IfS report is how very little it has to say on university research. When universities have less income and face big deficits, they can opt to stem the financial losses by doing less research as research generally loses money. Less research would be terrible for the UK as it would hamper the post-pandemic recovery. So the quantity of research that institutions can afford must be a bigger part of the wider conversation about university financing.

There is a strong case for continuing government support for universities of all types because of the jobs they provide, the education they deliver and the support they provide to employers as well as the research they undertake.

3 comments

  1. Dennis A Ahlburg says:

    In previous recessions in the UK and the US university enrollments have increased not decreased. I make this point in a forthcoming article in The Political Quarterly. Nick and David Willetts have also made this point yet estimates of the impact of covid continue to assume enrollment decreases. There are few jobs available to 18 year olds and with income contingent loans university looks to be the best option.

  2. albert wright says:

    The Government have placed caps on student enrolment in order to prevent this type of freeloading.

    The caps are generous and are likely to increase tax payer support for the sector year on year.

    Lower income streams from international students are likely and replacing this income or making cuts may well be the biggest challenge over the next 12 months.

  3. Dennis A. Ahlburg says:

    The caps protect less selective institutions (which are less affected by potential losses of international students) at the cost of more selective institutions and students. Disadvantaged students , in particular,will lose an opportunity to move up to a more selective institution.

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